Subsidies: Historic, Current and the Skewing of Market Signals

Carol Werner, Executive Director

Presented at:
Policy, Institutions and the True Costs of Carbon
Albuquerque, NM

A wide range of policy instruments provide incentives to the energy industry, including grant of access to domestic onshore and offshore resources, direct budgetary outlays for R&D and resource assessments, government ownership of energy enterprises or supporting service organizations, import/export restrictions, provision of market-related information, below-market provision of loans or loan guarantees, direct regulation of wholesale or retail energy prices, purchase requirements, regulations that alter rights and responsibilities in energy markets or provide exemptions to certain actors, provision of insurance or indemnification at below-market prices and special tax levies or exemptions for energy-related activities. These incentives are applied throughout the energy lifecycle, including the phases of research and development, extraction, transport, production, consumption and decommissioning.

Because these incentives are not applied equally to all energy sources, skewing of market signals occurs. In addition to these direct market interventions, a number of public and environmental externalities tied to energy activities incur societal costs and further skew the energy markets where external costs are not internalized. Examples of such externalities include effects on human health, crops, forests, fisheries, visibility, national security and climate. Historically and presently, the incentives to fossil and nuclear fuels greatly outweigh the incentives to renewable and energy conservation resources, as do the social costs of their externalities.

To view the PDF presentation, click here.